During its first year of operations, Snobegon, Inc. (located in Lake Snobegon, Minnesota), produced 40,800 plastic snow scoops. Snow scoops are oversized shovel-type scoops that are used to push snow away. Unit sales were 38,600 scoops. Fixed overhead was applied at $0 per unit produced. Fixed overhead was underapplied by $2,600. This fixed overhead variance was closed to Cost of Goods Sold. There was no variable overhead variance. The results of the year’s operations are as follows (on an absorption-costing basis):

Sales (38,600 units @ $20) $772, Less: Cost of goods sold 549, Gross margin $222, Less: Selling and administrative expenses (all fixed) 184, Operating income $ 38,

Required:

1. Calculate the cost of the firm’s ending inventory under absorption costing. Round unit cost to five decimal places. Round your final answer to the nearest dollar. $fill in the blank 749928f7306701e_

Solution COGS 549, Less: Fixed Overhead Underapplied 2, COGS before adjusting Underapplied Overhead 546, Unit Sold 38, Per Unit Cost 14. Cost of Ending Inventory (2,200 units) 31,

What is the cost of the ending inventory under variable costing? Round unit cost to five decimal places. Round your final answer to the nearest dollar. $fill in the blank e7e8c7f74023044_

Solution

Per unit cost as per absorption costing 14. Less: Fixed Overhead per unit 0. Unit cost under Variable Costing 13. Cost of Ending Inventory (2,200 units) 29,

2. Prepare a variable-costing income statement. Round the unit cost to five decimal places, when required. Round your final answers to the nearest dollar. Use the rounded values in subsequent computations.

Snobegon, Inc. Variable-Costing Income Statement For the First Year of Operations Sales $- Select - 772, Less: Variable cost of goods sold (38,600 x 13)

Contribution margin

$fill in the blank fc98c2011fed045_ 252, Less: Fixed overhead [(40,800 x 0) + 2,600]

Operating income

$fill in the blank fc98c2011fed045_ 36,

What is the difference between the two income figures?

$fill in the blank 581e2900d032f99_

Flaherty, Inc., has just completed its first year of operations. The unit costs on a normal costing basis are as follows:

Manufacturing costs (per unit):

Less: Overapplied overhead (13,200 – 5,500)

Select - 7,

Select - 333,

Gross profit

$fill in the blank cbffe902ef88075_ 606, Less: Selling and administrative expenses (24,750x1) +220,

Operating income

$fill in the blank cbffe902ef88075_ 349,

3. Prepare a variable-costing income statement. Round your answers to the nearest cent.

Flaherty, Inc. Variable-Costing Income Statement For the First Year of Operations Sales $- Select - 940, Variable cost of goods sold @11 x 24,

$- Select - 272, Add: Underapplied variable overhead

Select - 5,

Select - 277, Variable selling expense (1 x 24,750)

Select - 37,

Contribution margin

$fill in the blank 8062c2ff0fdc01f_ 625, Less: Fixed factory overhead (2 x 27,500) - 13,

$- Select - 63,

Selling and administrative expenses - Select - 220,

$- Select - 283,

Operating income

$fill in the blank 8062c2ff0fdc01f_ 341,

4. Reconcile the difference between the two income statements. The absorption costing generates an income $fill in the blank 83d023fc6044ff0_ more

than variable costing.

Pattison Products, Inc., began operations in October and manufactured 46,000 units during the month with the following unit costs:

Direct materials $4. Direct labor 2. Variable overhead 1. Fixed overhead* 6. Variable marketing cost 0.

Total fixed factory overhead is $294,400 per month. During October, 44,600 units were sold at a price of $25, and fixed marketing and administrative expenses were $121,900. Required:

1. Calculate the cost of each unit using variable costing. Round your final answer to the nearest cent.

$fill in the blank b02500fa9fa4048_1 8 per unit Solution Direct Materials + Direct Labor + Variable Overhead 4 + 2 + 1 = 8.

2. How many units remain in ending inventory?

fill in the blank b02500fa9fa4048_2 1,400 units Solution Units produced – Units sold

What is operating income for November?

$fill in the blank 80be5a0bf059f9a_2 363,

Solution

Beginning Inventory + Units produced – Units sold

= 1,400 + 46,000 – 47,

= 400 x 8 = 3,

Pattison Products, Inc., began operations in October and manufactured 52,000 units during the month with the following unit costs:

Direct materials $7. Direct labor 5. Variable overhead 2. Fixed overhead* 9. Variable marketing cost 2.

Total fixed factory overhead is $468,000 per month. During October, 50,500 units were sold at a price of $31, and fixed marketing and administrative expenses were $119,100. Required:

1. Calculate the cost of each unit using absorption costing. Round your final answer to the nearest cent. $fill in the blank 42535a06cfaafa6_1 23 per unit Solution DM + DL + VOH + FOH

2. How many units remain in ending inventory?

fill in the blank 42535a06cfaafa6_2 units Solution 52,000 – 50,500 = 1,

What is the cost of ending inventory using absorption costing?

$fill in the blank 42535a06cfaafa6_

Solution

3. Prepare an absorption-costing income statement for Pattison Products, Inc., for the month of October.

Pattison Products, Inc. Absorption-Costing Income Statement For the Month of October Sales (50,500 x 31)

$- Select - 1,565, Less: Cost of goods sold (50,500 x 23)

Gross profit

$fill in the blank 229532067ffb040_ 378, Less: Variable marketing expenses (50,500 x 2)

Fixed marketing and administrative expenses - Select -119,

Operating income

$fill in the blank 229532067ffb040_ 148,

Unit Cost

$fill in the blank 3 11 (Direct Materials + Direct Labor + Variable Overhead) 6 + 1 + 4 = 11) Cost of finished goods inventory

$fill in the blank 4 26,749 (83,400 – 81,100 = 2,300 x 11 = 26,749)

3. What is the dollar amount that would be used to report the cost of finished goods inventory to external parties?

$fill in the blank 5 Why?

Because absorption costing is required for external reporting

The following information pertains to Vladamir, Inc., for last year: Beginning inventory, units 1, Units produced 100, Units sold 101, Variable costs per unit: Direct materials $8. Direct labor $10. Variable overhead $1. Variable selling expenses $2. Fixed costs per year: Fixed overhead $300, Fixed selling and administrative expenses $240, There are no work-in -process inventories. Normal activity is 100,000 units. Expected and actual overhead costs are the same. Costs have not changed from one year to the next. Required:

1. How many units are in ending inventory? fill in the blank 21e018046fc8043_1 units

2. Without preparing an income statement, indicate what the difference will be between variable- costing income and absorption-costing income.

$fill in the blank 21e018046fc8043_

3a. Assume the selling price per unit is $32. Prepare an income statement using variable costing.

Vladamir, Inc. Variable-Costing Income Statement For Last Year Sales (101,000 x 32)

$- Select - 3,232, Less: Variable cost of goods sold (101,000 x 19)

Select - 1,919, Variable selling expenses (101,000 x 2)

Select - 202,

Contribution margin

$fill in the blank ee8f1c024fedfbe_ 1,111, Less: Fixed overhead

Operating income

$fill in the blank ee8f1c024fedfbe_ 571,

3b. Assume the selling price per unit is $32. Prepare an income statement using absorption costing.

Vladamir, Inc. Absorption-Costing Income Statement For Last Year Sales $- Select - 3,232, Less: Cost of goods sold